But we have been tipped by a senior banker in Luxembourg that he economic crisis facing Europe “is bigger than anyone is prepared to admit”. “The banks are desperately short of money,” he added, referring of course to euro zone banks.
In short: the euro zone needs Britain. There couldn’t be a better selling point for a change of fiscal strategy than, coincidental, firstly with the arrival of the reform treaty as the EU constitution is now known – secondly with the onset of a campaign to put former British Prime Minister Tony Blair in the driving seat backed by Nicolas Sarkozy and Angela Merkel, the German Chancellor and the vision of former Chancellor Gordon Brown riding to the rescue of the euro. In a rather long-winded interview with the BBC’s Radio 4 Today programme recently Gordon Brown highlighted that the British economy was strong with a global reach while America was in recession and the euro zone unable to reduce interest rates because of galloping inflation.
This makes a fascinating backdrop for the highly controversial summit of the EU’s euro group made up of France, Germany, Italy and the UK to be held in London at the end of this month.It gets more interesting when, as we were told by the UK’s permanent representation to the EU, Chancellor Alistair Darling is “to host” a preliminary meeting in Paris the day after tomorrow January 17.
While the British media focus on the protests from other member states, particularly Guy Verhofstadt, the Belgian Prime Minister, at the ‘arrogance of four large member states’ meeting apart from the 23 other member states it is, perhaps, more interesting to consider the agenda. There isn’t one.
At least, the agenda, if fixed has not been announced. The official reason for the meetings is described as “in response to the global financial crisis how will we respond. It is also curious that no decision had been taken as late as tonight (Tuesday) on whether the President of the European Commission would be invited.
Chris Davies is one of the brighter British MEPs and he quickly changed his slant – if not his position – as we debated the issue with him. Keen to promote Britain’s membership of the euro he had done the research and highlighted the question of Gordon Brown’s five economic tests.
On the telephone to Strasbourg it was possible to sense Mr Davies’ brain whirring. He provided us with the five tests in a flash by email. They are:
Are business cycles and economic structures compatible with eurozone interest rates on a permanent basis?
If problems emerge is there sufficient flexibility to deal with them?
Would joining the euro create better condition for firms making long-term decision to invest in Britain?
What impact would entry into the euro have on the UK’s financial services industry?
Would joining the euro promote higher growth, stability and a lasting increase in jobs?
Well what about that then? The pound has dropped 10 percent against the euro surely making a switch more favourable? Leaving for the moment the second
question would joining the euro create better conditions for firms making long term decisions to invest in Britain? No company wants to invest in a country with volatile exchange rates. That one is a no brainer.
What impact would joining have on the UK’s financial services? EU legislation, introduced since the five tests were drawn up, allegedly in the back of a taxi by the then assistant to Brown Ed Balls, now govern all, or most aspects of financial services across Europe. The fifth question is subject to the fundamental reason for holding the Paris and London meetings in the first place. Both the UK and the eurozone are desperate to protect jobs and would be happy with simple, straightforward stability. But what of the second question?
Nicolas Sarkozy has been banging on recently about France having more control over EU interests rates and therefore over the European Central Bank. We have been reporting on this fundamental French position for ages but now the president has come clean.
The bank of England was given a questionable independence by Gordon Brown as Chancellor. As Chris Davies thoughtfully concluded: “Britain is the worlds fifth largest economy. If nothing else membership of the euro would put the UK within the world’s largest.”
He might have added that the UK has the second largest economy in Europe
after Germany. But as Gordon Brown said on the Today programme Germany has been, and still is, in recession.
Nicolas Sarkozy has famously told the French people to think like Anglo-Saxons and to speak English. France, as we have reported, is in a parlous economic state.
As we spoke Chris Davies suggested that opposition in the UK would be so huge that the idea we were presenting was fatuous. But then, professional that he is he pondered out loud on the telephone: “The Conservatives are fuzzy on the reform treaty. That issue has the Conservatives on the back foot. That issue has gone quiet. Gordon Brown needs some sort of fight. Joining the euro would take everyone’s mind off the constitutional issues.”
He disagrees that Tony Blair is favourite for the presidency citing Anders Fogh Rasmussen the former Danish Prime Minister as a more likely candidate. We
disagree. The EU may have changed but there is a long tradition of appointing candidates from large states to such new and important posts.
Besides, you don’t have to be an economist to ask where are the European banks and the eurozone economy without the fifth largest economy in the world. It would certainly suit New Labour to see Tony Blair, recently converted to Catholicism, as the first president of the EU and right now the negotiating chips are all in Gordon Brown’s pocket.
Tuesday, January 15, 2008
Britain to join the Euro This year?
Now here is a very interesting piece of speculation from Chris White of the Brussels newspaper EU Reporter.